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Commercial Real Estate Terms You Need to Know

When entering the commercial real estate market, it can seem a daunting task initially. There are many different terms that most people won’t typically know or understand unless they have experience in the area of commercial real estate. This article is in place to help those with little experience in this field to understand the most frequently used terms. (Related: office space for rent, office space for sale, office space for lease)


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Cost Per Unit

The cost per unit is the cost per individual unit in the property, without taking into consideration the size or condition.

 

Debt Service

The amount each payment of interest and repayment of principal is also known as debt service.

 

Gross Rent

Gross rent is the total amount of rent that is paid for rent or lease of the property.

 

Gross Potential Rent

Gross potential rent is the expected rent gathered from all units on the property when rented or leased out separately.

 

Cap Rate

The capitalization rate is equal to the expected overall return of the property when taking into consideration all costs.

 

Net Operating Income

The net operating income is equal to the rental income that is generated, disregarding the property expenses.

 

Return on Investment

The return on investment is determined by the estimated cash value that is amassed after all expenses are paid out.

 

Present Value

The present value is the sum of future rent payments that are required for the duration of the contractual agreement.

 

Vacancy and Collection Loss

Vacancy and collection losses are the determined value that could have been made when some units are not rented out.

The terms used in this article are only a few from a very long list. It is always advised for someone who is not entirely comfortable in the area of commercial real estate to find help through a professional. They can help anyone can find exactly what they are looking for and will allow for negotiations to be entered in the strongest position possible. Contractual agreements in the field of commercial real estate can become very complicated, and it is never advised to take the risk on anything that is unclear.